You are here

September 2009

George Ou's good post yesterday on "Being Rational on Text Pricing" rightly takes to task the complaint that text messaging should be priced at marginal costs and ignore total costs, upgrade costs, or competition. It also prompts me to join in to address the issue.

Lets get to the quick here.

The folks arguing for text pricing to be based on marginal costs are trying to politically redefine traditional economics in the datatopian Chris Anderson vision of the "economics of abundance" -- that because the marginal cost of computer processing, storage, and bandwidth are getting increasingly small -- the price should be free!

I call this political thinking that "information wants to be free" and the "economics of abundance" school of thought -- simply -- uneconomics.

It ignores the real world, real economics, the reality of private property, market forces of incentives and disincentives, etc.

Does anyone think that the infrastructure that enables the instantaneous reliable delivery of roughly a billion text messages every day wherever one happens to be -- costs basically nothing to pull off and thus should be free?

George Ford of the Phoenix Center does a great job of debunking the OECD's latest self-serving set of metrics covering mobile prices in his latest research piece: "Be careful what you ask for: a comment on the OECD's mobile price metrics."

The OECD's mobile metric approach reminds me of the old adage that you can get statistics to say anything you want -- if you beat them up enough. As George's white paper shows, the OECD had to really work over the data to get it to reach the upside-down conclusion that Europe's average wireless prices are lower than the U.S.

First, the OECD ignored the pesky notion of overall wireless usage, because if they looked at usage they would have to include the pesky fact that Americans use massively more wireless minutes of use than their European counterparts -- roughly 2-6 times more depending on the country.

Second, ignoring usage allows the OECD to ignore economics and common sense, because if people were told Americans use the most wireless minutes of use, someone might obviously connect-the-dots of supply & demand and conclude that Americans' more minutes of use are a result of lower average prices than other countries.

Third, George pointed out that the OECD selectively chose certain usage price points on the usage curve to best make their case. However, if one looks at the entire distribution of the curve, their selective conclusion looks all the more "selective" and suspect.

With due to credit to "Ripley's Believe it or Not!®," so much odd and bizarre is happening in Washington in the "name" of "wireless innovation" and competition that the topic calls for its own collection of: "Believe it or Not!®"oddities.

Skype co-founder Niklas Zennstom, the co-founder of illegal-music-downloading site Kazaa, who had to avoid entering the U.S. because of copyright-infringement liability... is now seeking a U.S. court injunction to shut down eBay's Skype for alleged copyright violations!

DOJ's 28-page Statement of Interest to the Court responsible for deciding the fate of the Google Book Settlement speaks volumes.

First, it ensures the current proposed settlement is effectively dead.

It is hard to conceive a U.S. Federal District Court Judge approving a settlement, which the United States Government indicates may be illegal under three completely different bodies of law (class action, copyright and antitrust), and also may be per se illegal in multiple different ways.

Second, despite the DOJ's encouraging tone in the press release, the DOJ statement itself set a very high bar for the parties to overcome. Substantively, the DOJ is insisting on radical changes in the settlement that practically would gut the unique and self-serving going-forward public benefits of the deal for the parties.

In a nutshell, the DOJ's is effectively urging the deal be radically pared back from covering:

~All books -- to just books-in-print (a fraction of the seven million books Google has copied);

U.S. and foreign works -- to just U.S. works;

Scanning and all derivative uses -- to just scanning and snippets;

Retrospective and prospective impacts -- to retrospective and heavily-scaled-back prospective impacts; and

Just the parties who get special public benefits -- to enabling most outsiders to share equally in the settlement's public benefits.

Third, it raises the question if there is still a basis for the parties to settle, because the DOJ recommended fixes fundamentally and substantially limit what the parties can extract from the settlement.

For those trying to better understand some obvious, important and necessary reasons why networks need to engage in "reasonable network management" and prioritize Internet traffic to ensure quality of service for all -- please read a great post by George Ou over at Digital Society.

Traffic prioritization is not anti-competitive or anti-openness -- its simple common sense network management.

What an "Open Internet" does not mean is as important as what it does mean.

Surely an "Open Internet" is not intended to mean what it certainly can mean: un-protected, unguarded, or vulnerable to attack.

Thus, it is essential for the FCC to be explicit in defining what the terms -- "Open Internet," "net neutrality," and Internet non-discrimination -- don't mean, as well as what they do mean.

The word "open" has 88 different definitions per Dictionary.com and the word "open" has even more different connotations depending on the context. While the term "open" generally has a positive connotation to mean un-restricted, accessible and available, it can also have a negative or problematic connotation if it means unprotected, unguarded or vulnerable to attack.

That's the thrust of an excellent Washington Post lead editorial today entitled: "The FCC's Heavy Hand: Federal regulators should not be telling Internet service providers how to run their businesses."

Kudos to the Post for great clarity of thought in getting right to the crux of the problem with the proposed regulations in asking the simple bottom line question: "Is this intervention necessary?"

The editorial put a bright spotlight on an embarassing vulnerability of these proposed regulations -- that they obviously are unjustified on their face.

The Post is also dead on in exposing the severity and intrusiveness of the intervention that the FCC Chairman is proposing, despite assurances to the contrary.

"In short, ISPs, which have poured billions of dollars into building infrastructure, would have little control -- if any -- over the kinds of information and technology flowing through their pipes."

Lastly, the editorial belies the FCC Chairman's claim that the FCC won't overreach, by accurately calling the proposed regs for what they truly are: "attempts to micromanage what has been a vibrant and well-functioning marketplace."

Just a year ago, Public Knowledge wrote a letter to the FCC in strong opposition to long distance carriers blocking phone calls from "traffic pumping" sites that the carriers alleged were fraudulently gaming/arbitraging the access charge subsidy system.

("Traffic pumping" is a regulatory arbitrage scheme where some rural carriers offer specialty-websites in order to bring basically one-way traffic to an access charge financial system designed for two-way offsetting traffic. The effect is that the rural carrier/specialty-site effectively turns the carriers into a one-way ATM machine where they can take money out of the system without having to put any in.)

Now that Google is alleged to be doing the same thing that the FCC and Public Knowledge said carriers could not do, i.e. blocking calls to these same sites, where is Public Knowledge in objecting?

If Public Knowledge's views are principled and truly based on forwarding the public interest, it should be only a matter of time that Public Knowledge formally and strongly objects to the FCC in writing -- for Google doing the same thing that Public Knowledge strongly objected to when carriers did it.